Brad Setser sees hope in the correction:
I increasingly suspect that one consequence of United States and Europe’s recent financial crisis will be a smaller deficit in both regions, and a smaller surplus in the emerging world.
Thursday, October 09, 2008
Robert McHugh was right!
15 months ago, Robert McHugh predicted this:
[The Dow] can be expected to drop to about the start of the pattern, at a minimum, meaning into the 9,000s over the intermediate-term... It is looking increasing likely to us that world central banks will choose hyperinflation rather than nominal decline in stock indices, which will force precious metals prices to rise sharply.
In gold-price terms, McHugh's Dow prediction came true on January 22 this year. Now it's come true in nominal terms, too (9,153.22 at 13:04 ET today) (UPDATE: 8.731.87 at 15:41).
It seems McHugh is an adherent of the Elliot Wave principle. Wikipedia gives a criticism of the theory:
The premise that markets unfold in recognizable patterns contradicts the efficient market hypothesis, which says that prices cannot be predicted from market data such as moving averages and volume. By this reasoning, if successful market forecasts were possible, investors would buy (or sell) when the method predicted a price increase (or decrease), to the point that prices would rise (or fall) immediately, thus destroying the profitability and predictive power of the method. In efficient markets, knowledge of the Elliott wave principle among investors would lead to the disappearance of the very patterns they tried to anticipate, rendering the method, and all forms of technical analysis, useless.
I think one could riposte that events have demonstrated that the efficient market does not exist.
[The Dow] can be expected to drop to about the start of the pattern, at a minimum, meaning into the 9,000s over the intermediate-term... It is looking increasing likely to us that world central banks will choose hyperinflation rather than nominal decline in stock indices, which will force precious metals prices to rise sharply.
In gold-price terms, McHugh's Dow prediction came true on January 22 this year. Now it's come true in nominal terms, too (9,153.22 at 13:04 ET today) (UPDATE: 8.731.87 at 15:41).
It seems McHugh is an adherent of the Elliot Wave principle. Wikipedia gives a criticism of the theory:
The premise that markets unfold in recognizable patterns contradicts the efficient market hypothesis, which says that prices cannot be predicted from market data such as moving averages and volume. By this reasoning, if successful market forecasts were possible, investors would buy (or sell) when the method predicted a price increase (or decrease), to the point that prices would rise (or fall) immediately, thus destroying the profitability and predictive power of the method. In efficient markets, knowledge of the Elliott wave principle among investors would lead to the disappearance of the very patterns they tried to anticipate, rendering the method, and all forms of technical analysis, useless.
I think one could riposte that events have demonstrated that the efficient market does not exist.
A big figure
Hard on the heels of the $700 billion US bailout bill comes the UK's £400 billion rescue plan.
Oddly, this latter figure, in dollar terms, is very similar to the one approved by Congress - a little over $692 billion at today's retail conversion rates (and even closer in wholesale terms).
But the really interesting thing is the difference is in its relationship to the size of the population of the country, and the GDP:
Oddly, this latter figure, in dollar terms, is very similar to the one approved by Congress - a little over $692 billion at today's retail conversion rates (and even closer in wholesale terms).
But the really interesting thing is the difference is in its relationship to the size of the population of the country, and the GDP:
Marc Faber recently said that the US needed $5 trillion to resolve the crisis, i.e. 7 times more than the amount approved by Congress. Britain's bailout fund is proportionately 7 times greater, and so, crippling cost to the taxpayer aside, maybe it could work.
And it has political implications. The average Brit is so innumerate that he doesn't know how to calculate 75% of 100, so don't expect him to understand that it wasn't simply "the banks" to blame, but the relaxation of Government monetary controls. Don't discount the possibility that, however undeservedly, Gordon Brown may win the next election.
End of the dollar as the world's reserve currency?
See the comment in Brad Setser's blog - Brazil and Argentina are already finding other ways to pay each other, Russia may deal in euros... if no-one wants the dollar after Jesse's predicted devaluation, it may go from devalued to almost worthless.
But what will countries do, that export to the USA? Devalue their own currencies? Or demand payment in euros? Or oil contracts? Even Setser admits to struggling to understand what's going on.
Jesse also comments on a report that the Gulf States may diversify into gold.
But what will countries do, that export to the USA? Devalue their own currencies? Or demand payment in euros? Or oil contracts? Even Setser admits to struggling to understand what's going on.
Jesse also comments on a report that the Gulf States may diversify into gold.
Wednesday, October 08, 2008
Currency devaluation time?
Jesse reckons there's going to be a massive (30 - 40%) devaluation of the US dollar, in order to swindle foreign creditors.
Are there any currency experts out there who can tell me whether the UK won't race to do the same? Will the Yen and the Renminbi be forced upwards, relatively speaking? Should we be buying dried food etc instead of holding cash?
Are there any currency experts out there who can tell me whether the UK won't race to do the same? Will the Yen and the Renminbi be forced upwards, relatively speaking? Should we be buying dried food etc instead of holding cash?
FTSE prediction: poll results
Thanks to all those who took part in the poll for the forecast value of the FTSE by the end of December. The median line is on 4,500.
This is what I guessed in June and repeated on Monday. Below that at the moment, but I'm still hoping that it'll settle back to the simplified trend I suggested. I prefer to be a sun bear, not a grizzly.
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